The 2026 Federal Budget: What It Actually Means for Your Separation

The Federal Budget does more than change tax rates and government spending. It can directly affect the financial outcome of a separation.

Changes to capital gains tax, negative gearing, income tax, disability funding and housing policy all have the potential to influence property settlements, child support, spousal maintenance and the financial decisions separating families need to make.

The 2026 Federal Budget introduces several significant reforms that family lawyers should already be factoring into their advice. Whether you are negotiating a property settlement, caring for children after separation or planning your financial future, understanding these changes is essential.

Here is what the 2026 Federal Budget means for separating families.

The CGT Reform Is the Biggest Property Settlement Story of the Decade

The capital gains tax reform announced in this Budget is one of the most consequential changes for property settlements I have seen in years.

From 1 July 2027, the familiar 50% discount for individuals, trusts and partnerships will be replaced with cost base indexation and a new 30% minimum tax rate. Indexation means that only real capital gains (the genuine increase in value above inflation) will be taxed.

If implemented, the critical issue for separating couples is this: the new rules apply only to gains arising after 1 July 2027. Existing investments carry transitional protections. Investors in new builds will be able to choose the 50% GST discount or the new arrangements on sale.

What does that mean in practice? If your property pool includes investment properties, share portfolios or business interests, we need to be valuing those assets through the lens of the new tax treatment, not the old one. The timing of your settlement and any post-settlement sale is now far more strategically significant than it has ever been. If you have substantial CGT assets and you are not getting advice before 1 July 2027, you are leaving real money on the table.

Negative Gearing: The Grandfathering Question That Will Divide Property Pools

Negative gearing has been one of the most debated measures in this Budget. The practical effect, however, is relatively straightforward.

This is not an abolition of negative gearing.

From 1 July 2027, negative gearing for residential property will be limited to new builds that genuinely add to housing supply.

For separating couples, the critical distinction is this: residential properties held, or acquired under a binding contract, before 7:30pm AEST on 12 May 2026 are grandfathered, meaning existing investors can continue to access the current negative gearing rules. Investments that support government housing programs, including affordable housing, are also exempt.

Why does this matter in family law? Because the tax treatment of an investment property affects its future income producing capacity. If one party retains an investment property as part of a property settlement, the after-tax return generated by that asset may differ depending on whether it falls within the grandfathered rules or the new regime. Those differences may become relevant when assessing the parties' future financial circumstances under the Family Law Act 1975. Getting those assumptions wrong at the time of settlement may have financial consequences for years to come.

The Government estimates that the combined capital gains tax and negative gearing reforms will support approximately 75,000 additional first home buyers entering the market over the coming decade. While the long-term impact remains to be seen, separating couples should ensure these tax changes are properly factored into any property settlement involving investment assets.

Discretionary Trusts: A Restructure Window That Won't Stay Open Forever

For many business owners and farming families, a discretionary trust holds a significant portion of the family's wealth. These reforms could materially change the way those structures are taxed and, in turn, how they are considered in family law matters.

From 1 July 2028, discretionary trusts will be subject to a 30% minimum tax, with beneficiaries receiving non-refundable tax credits for tax paid by the trustee. Fixed trusts, complying superannuation funds, special disability trusts and deceased estates are excluded.

For family lawyers, the practical implications are significant. A lower after tax return from trust distributions may affect business valuations, the assessment of future financial resources and, in some cases, child support and spousal maintenance.

To assist with these reforms, a three-year rollover relief period will be available from 1 July 2027, allowing eligible businesses to restructure out of discretionary trusts into another entity, such as a company or fixed trust, without triggering adverse income tax consequences, including capital gains tax.

I am already advising clients on whether restructuring before finalising a property settlement is appropriate, because implementing those changes after settlement can be considerably more complex.

Importantly, this restructuring rollover relief is separate from the existing CGT rollover relief that applies to transfers made under a family law order or a Binding Financial Agreement. The two regimes serve different purposes and should both be considered where a property settlement involves discretionary trust assets.

Income Tax Cuts and What They Mean for Child Support and Maintenance

The personal income tax changes announced in this Budget may appear modest, but they have the potential to affect child support and spousal maintenance assessments by changing a person's after tax income and overall financial position.

From 1 July 2026, the tax rate on income between $18,201 and $45,000 will reduce from 16% to 15%, before reducing further to 14% from 1 July 2027. The Budget also introduces a new Working Australians Tax Offset of up to $250 per year from the 2027–2028 income year and allows eligible workers to claim an instant tax deduction of up to $1,000 for work related expenses from the 2026–2027 income year.

Taken together, these measures will increase disposable income for many Australians. An individual earning the average annual salary of $81,245 is expected to receive a tax cut of $1,978 in 2026–2027 and $2,496 per year from 2027–2028, compared with the 2023–2024 tax settings.

For separating couples, even relatively modest changes in income can be relevant. Child support assessments are based on adjusted taxable income, while a party's income and financial resources are central considerations in determining spousal maintenance. Where circumstances change, those assessments may also change.

The Budget also increases the Medicare levy low-income thresholds by 2.9% for the 2025–2026 income year, providing additional relief for eligible low-income earners.

NDIS Reform: The Change That May Significantly Affect Some Families

Of all the measures announced in this year's Budget, I believe the NDIS reforms have the greatest potential to affect some separating families.

The Budget includes measures expected to reduce projected NDIS expenditure by $37.8 billion over the forward estimates compared with previous projections. At the same time, projected annual growth in the Scheme is expected to slow from more than 10% in 2024–2025 to around 2% between 2025–2026 and 2029–2030.

Taken together, these reforms significantly change the operation of the Scheme, including who may be eligible for support and how that support is delivered. They introduce tighter eligibility criteria based on functional capacity, more rigorous reassessment processes, and expanded mandatory registration requirements for higher risk providers.

The reforms also establish the Thriving Kids program and new Foundational Supports for some people who are not eligible for, or who transition out of, the NDIS. As a result, some families may receive support through state and territory delivered programs rather than the NDIS. The services available, eligibility criteria and the way support is delivered may vary depending on where a family lives.

For separating families, these changes may have practical consequences. Where a family has a neurodiverse child or a party living with disability, the availability of government funded support may be relevant to:

• Parenting arrangements, particularly which parent is best placed to coordinate and access services.

• Property settlements, where a parent's future care responsibilities and financial needs may be affected by changes in available support.

• Spousal maintenance, where ongoing care responsibilities may affect a party's capacity to work and financial position.

The full impact of these reforms is likely to emerge over time. Families negotiating parenting and financial arrangements now should consider how changes to disability support may affect their future circumstances, rather than focusing solely on their current position.

Housing: What It Means When You Are Rebuilding After Separation

Finding somewhere to live after separation is one of the most stressful practical challenges people face.

The Budget funds a shared equity scheme and a 100,000 homes program for first home buyers. These are modest but real measures that may open doors for people emerging from separation who could not otherwise access the property market.

More importantly for legal purposes: the practical availability of secure housing can be a relevant consideration in parenting and financial planning following separation. The need to provide appropriate housing for children is often a significant practical consideration when negotiating a property settlement following separation. Understanding what programs and options are available to you is part of making smart decisions in your settlement.

The Bottom Line

The reality is that family law does not operate in a vacuum.

When governments change tax rules, housing policy, disability funding and income settings, those changes inevitably influence property settlements, parenting arrangements and the financial decisions separating families must make.

The 2026 Federal Budget is not simply a document for economists and politicians. For many Australians navigating separation, it may affect the value of their assets, the support available to their family and the financial decisions they make long after their matter has concluded.

Understanding these reforms is not about predicting the future. It is about ensuring that today's settlements properly account for tomorrow's financial reality.

The most effective family law outcomes are those that look beyond the immediate resolution of a dispute and anticipate the practical challenges clients will face in the years ahead.

Authored by Melanie Vairawanathan, Founder & Principal Lawyer of Melmark Law

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Melanie Vairawanathan is the Founder and Principal Lawyer of Melmark Law and a multi award winning family lawyer known for achieving exceptional outcomes in matters that most people would rather avoid entirely.

She holds a Master of Laws with a specialisation in Family Law and is admitted to practise in Victoria. She is also one of a select number of qualified Collaborative Family Lawyers in Melbourne, which means she will always try to resolve disputes calmly, commercially and with as little conflict as possible. But when litigation becomes necessary, she is very comfortable switching gears.

Melanie practises almost exclusively in family law, including complex parenting disputes, high conflict property matters and family violence proceedings. In other words, the kinds of matters where emotions are high, stakes are significant.